City Comment

Man at the Smiths wheelhouse has plenty of firepower on board

KEITH BUTLER-WHEELHOUSE, chief executive of Smiths Group, certainly has the kit to scare his shareholders. As a supplier to the F-35 Joint Strike Fighter, he's got the firepower to petrify them, as his finance director Alan Thomson helpfully put it yesterday.

Eighteen months ago, he bought TI, whose boss, Sir Christopher Lewinton, had an impressive ability to do handsome deals for himself. This time, his skills extended to the shareholders, and everyone feared he had stuffed the man at the Smiths' wheelhouse with TI's rag-bag of automotive businesses and industrial seals as the price for letting him have Dowty Aerospace. Smiths' shares fell 12pc on the day, and ever since, Mr Butler-Wheelhouse has been slogging round the City explaining himself.

Judging by yesterday's half-year figures, accompanying another round of job cuts, he's not there yet. He cheerfully admits he bought TI for Dowty, just a third of the business. Dowty brought Smiths the scale required to fight in the US defence league, against Honeywell and Rockwell.

Without this clout, he claims, Boeing would not even have looked at Smiths' tender for a contract, worth $1 billion over 20 years, to supply the system for the new tanker transport planes which refuel military aircraft in-flight. Now look what's happened: he won it.

This strategy has left shareholders requiring some refuelling of their own. They have had to watch the tortuous demerger of TI's automotive business to its managers, not for the clean £1.2 billion they had expected, but a desperate mix of £625m cash, £315m preference shares and 19.9pc left over.

Now he's got the seals to contend with, which are still not performing, despite his taking a club to the costs. Suitably trained, analysts reckon this business could fetch £1 billion or so to invest in the two he wants to keep, aerospace and medical equipment.

Mr Butler-Wheelhouse is proud of outperforming the FTSE 100 by 6pc since the TI plunge. He's yet to prove he got the better of Sir Christopher, but it looks as though he's taken Smiths through the pain barrier.

Wanted: a governor in tune with the Blair project

FOR those who could drag themselves away from Cheltenham yesterday, there were some frantic signals, and swift adjustment of the the odds, on the City's most intriguing race, whose winner will be the next governor of the Bank of England. At first sight, Gordon Brown's answer to a planted question in the House appears to rule Sir Howard Davies out of the running. The chancellor revealed that Sir Howard has had his sentence at the Financial Services Authority extended by a further 18 months.

Whether or not this is for good behaviour, Mr Brown did not say, but it means he will be stuck down at Canary Wharf until the end of January 2004. Apparently he wants to see the Equitable Life saga through to a conclusion, which is a noble enough aspiration, although, given the speed at which these affairs grind on, that may not be long enough.

At this end of town, meanwhile, the vacancy at the Bank comes up in June next year, and Sir Edward George has signalled that he thinks 41 years there is probably enough for a single lifetime. So it's clear then; Sir Howard will still be distracted at the FSA, and therefore in no position to succeed him.

Well, maybe. The governor of the Bank is appointed by the prime minister, and it's widely assumed that the Blair-Brown pact devolved this piece of patronage to the chancellor. Mr Brown would ask Ed Balls, his right-hand man, and both might prefer Mervyn King, the Bank deputy governor who is as sound as Sir Edward on the euro.

Mr Balls, you will recall, is the architect of the roaring success of allowing the Bank's committee to set interest rates to suit Britain; he would hardly like to see the whole thing crushed under the heavy roller of the single currency. Unfortunately, nothing in politics is ever quite straightforward. Sir Howard is more in tune with the Blair project than Mr King, and would cause much less trouble at the prospect running a branch office of the European Central Bank. Nobody is going to sue him for breach of contract if he has to rush off from the FSA in June next year.

There's all to play for, and Mr Brown has done Sir Howard a favour by avoiding an awkward lacuna between his service at the FSA ending and the Bank job becoming available. We can only wonder why.

WELL done, Sir Peter Davis. There will be no donning of red aprons for Sainsbury's chief exec. He has sensibly turned down the Government's offer to head a review into the role of a non-executive director. His decision may be based on a passing knowledge of the Companies Acts - no mention is made of non-execs, and so, strictly speaking, they do not exist. All directors are fully and equally responsible for the board's stewardship.

Or perhaps he recalls the ill-tempered two hours that Sir Richard Greenbury (and his apron) spent in a House of Commons employment committee seven years ago, where he told MPs how much he hated chairing the investigation into executive pay.

More probably, however, Sir Peter remembers heading the grandly-titled Welfare to Work New Deal Task Force, although no one else knows what it achieved. But that was in 1997 when business leaders were falling over each other to help their New Best Friend, St Tony. Not any more. Sir Peter has rightly decided he has a proper day job - and he wants to get on with it.